Jin Zhong Xin v. Heng Li Zhu (In re Heng Li Zhu)

• Decision Date: 12 August 2022
• Docket Number: 19-11870-JLG,Adv. Pro. 19-01358-JLG
• Parties: In re: Heng Li Zhu, Debtor. v. Heng Li Zhu, Defendant. Jin Zhong Xin and Ruixuan Cui, Plaintiffs,
• Court: U.S. Bankruptcy Court — Southern District of New York

In re: Heng Li Zhu, Debtor.

Jin Zhong Xin and Ruixuan Cui, Plaintiffs, v. Heng Li Zhu, Defendant.

No. 19-11870-JLG

Adv. Pro. No. 19-01358-JLG

United States Bankruptcy Court, S.D. New York

August 12, 2022

NOT FOR PUBLICATION

Chapter 7

TROY LAW, PLLP Counsel for Plaintiffs By: John Troy, Esq. Aaron B Schweitzer, Esq.

SHI & ASSOCIATES Counsel for the Debtor By: Edward Miller Esq.

MEMORANDUM DECISION AND ORDER DENYING PLAINTIFFS' MOTION TO AMEND FIRST AMENDED COMPLAINT AND GRANTING DEBTOR'S MOTION TO DISMISS

HON JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Introduction^[1]

Heng Li Zhu (the "Debtor" or "Defendant") is a chapter 7 debtor herein. Jin Zhong Xin and Ruixuan Cui (together, the "Plaintiffs") are judgment creditors of the Debtor in the aggregate amount of $127,612.91 (the "Judgment Debt"). The Plaintiffs were awarded the underlying Judgment in the District Court Action discussed below. In this adversary proceeding, the Plaintiffs purport to challenge the dischargeability of the Judgment Debt and to seek to deny the Debtor his bankruptcy discharge. The Troy Law Firm ("Troy Law") acted as Plaintiffs' counsel in the District Court Action and represents them in this adversary proceeding. In the Complaint they filed to commence this action, the Plaintiffs sought a judgment against the Debtor and an order of the Court determining that the Judgment Debt is excepted from discharge under section 523(a)(6) of the Bankruptcy Code (the "Section 523(a)(6) Claim"). In their First Amended Complaint-which is the operative complaint-the Plaintiffs added a claim seeking to deny the Debtor his discharge pursuant to section 727(a)(4)(A) of the Bankruptcy Code (the "Section 727(a)(4) Claim").

The Plaintiffs moved pursuant to Rule 15 of the Federal Rules of Civil Procedure ("Rule 15")^[2] for leave to file their Proposed Second Amended Complaint (the "Motion to Amend")^[3] against the Debtor in which they purport to (i) allege a claim for relief against the Debtor challenging the dischargeability of the Judgment Debt under section 523(a)(2) of the Bankruptcy Code (the "Section 523(a)(2) Claim"); and (ii) allege additional facts in support of their Section 523(a)(6) Claim and Section 727(a)(4) Claim.^[4] The Debtor opposes the Motion to Amend and has moved to dismiss the complaint (the "Opposition" or "Motion to Dismiss", and together with the Motion to Amend, the "Motions"))^[5] pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)")^[6] for failure to state a claim upon which relief can be granted.

For the reasons stated herein, the Court denies Plaintiffs' Motion to Amend and grants the Debtor's Motion to Dismiss.

Jurisdiction

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and 1334(b), and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

Background

The Debtor and his wife jointly own 1A ROYAL THAI CUISINE &amp 1A ANAGO SUSHI INC. d/b/a Anago Sushi Japanese Thai Cuisine ("Anago") and SUSHI SUKI, INC. d/b/a Sushi Suki ("Sushi Suki"). They operate Anago as a restaurant under the name Anago Sushi Japanese Thai Cuisine located at 240 Eighth Avenue, New York, NY and Sushi Suki as a restaurant under the name Sushi Suki located at 1577 York Avenue, New York, NY 10028. On January 19, 2018, the Plaintiffs commenced an action (the “District Court Action”)^[7] against the Debtor, Anago and Sushi Suki and others (collectively, the "District Court Defendants") in the United States District Court for the Southern District of New York (the "District Court") seeking damages from the District Court Defendants based on their alleged violations of the Fair Labor Standards Act ("FLSA") and the New York Labor Law ("NYLL") in the operation of the restaurants. In broad strokes, in their complaint in support of the District Court Action (the "District Court Complaint"),^[8] the Plaintiffs complained that in violation of the FLSA and NYLL, the District Court Defendants failed to properly compensate Plaintiffs in accordance with relevant state and federal laws and failed to provide them with notices and other documents relating to their jobs called for under applicable laws. As to the former, the Plaintiffs alleged that at all relevant times, the District Court Defendants knowingly and willfully:

failed to pay Plaintiffs and similarly situated employees at least the New York minimum wage for each hour worked;

failed to pay Plaintiffs and similarly situated employees their lawful overtime of one and one-half times (1.5x) their regular rate of pay for all hours worked over forty (40) in a given workweek;

failed to pay Plaintiffs and similarly situated employees their lawful spread of hours for workdays that began and ended ten (10) hours apart; and

failed to keep full and accurate records of Plaintiffs' hours worked and wages paid.

District Court Complaint ¶¶ 41-45. They maintained that the Debtor failed to keep full and accurate records in order to mitigate liability for wage violations, and that he knew that the nonpayment of wages for all hours worked and the nonpayment of wages at one and one-half time (1.5x) employees' regular rates violated state and federal laws and would financially injure Plaintiffs and similarly situated employees. See id. ¶¶ 46, 49.

They also alleged that at all relevant times, the District Court Defendants failed to post the required New York State Department of Labor posters regarding minimum wage pay rates, overtime pay, and pay day. See id. ¶ 50. They asserted that the District Court Defendants:

failed to provide Plaintiffs and similarly situated employees with Time of Hire Notices in their primary languages reflecting rates of pay and payday as well as paystubs that listed the employee's name, the employer's name, the employer's address and telephone number, the employee's rate or rates of pay, any deductions made from employees' wages, any allowances claimed as part of the minimum wage, and the employee's gross and net wages for each pay day; and

failed to provide Plaintiffs and similarly situated employees with statements every payday that accurately listed all of the following: the dates of work covered by that payment of wages; the employee's name; the name of the employer; the address and phone number of the employer; the employee's rate or rates of pay and basis thereof; the employee's gross wages; the employee's deductions; allowances, if any, claimed as part of the minimum wage; net wages; the employee's regular hourly rate or rates of pay; the employee's overtime rate or rates of pay; the employee's number of regular hours worked, and the employee's number of overtime hours worked.

Id. ¶¶ 48-49.

On June 4, 2019, following a jury trial in the District Court Action, the jury (the "Jury") returned a verdict in favor of the Plaintiffs against the Debtor and Anago. The verdict did not establish any liability of Sushi Suki.^[9] The Jury's Verdict Forms contain findings of fact relating to: (i) the period of Plaintiffs' employment by Anago and the average weekly number of hours Plaintiffs worked at Anago;^[10] (ii) the wages paid by the Debtor to the Plaintiffs;^[11] and (iii) the Debtor's failure to provide pay stubs and adequate wage notices to the Plaintiffs.^[12] The Jury also found that the Debtor and Anago did not act in good faith when they (a) failed to pay Plaintiffs the applicable minimum wage, adequate overtime wages and spread of hours pay and (b) failed to provide adequate pay stubs and wage notices. The District Court calculated the damages against the Debtor and Anago in light of the Jury's verdict and entered a judgment against the Debtor and Anago jointly and severally in the aggregate amount of $127,612.91 (the “Judgment”)^[13] as follows:

The Judgment awarded Jin Zhong Xin damages in the sum of $54,242.26, consisting of:

(A) compensatory damages for unpaid wages in the amount of $17,682; (B) liquidated damages for unpaid wages under the New York Labor Law in the amount of $17,682; (C) statutory damages for violation of New York Labor Law § 195 in the amount of $10,000; and (D) pre-judgment interest calculated at the rate of 9% per annum and totaling $8,878.26.

See Judgment at 2. The Judgment awarded Ruixuan Cui damages in the sum of $24,143.61, consisting of

(A) compensatory damages for unpaid wages in the amount of $6,315; (B) liquidated damages for unpaid wages under the New York Labor Law in the amount of $6,315; (C) statutory damages for violation of New York Labor Law § 195 in the amount of $7,400; and (D) pre-judgment interest calculated at the rate of 9% per annum and totaling $4,113.61.

See id. The Jury awarded to the Plaintiffs their attorney fees in the amount of $45,656.45 and costs in the amount of $3,570.59. See id.

On June 6, 2019 (the "Petition Date"), the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code (the "Bankruptcy Case") in this Court.^[14]

On June 9, 2020, the Clerk of the Bankruptcy Court (the "Clerk") sent notices to twenty-three interested parties, including Troy Law, as Plaintiffs' counsel in the District Court Action, setting July 10, 2019, as the first date for the 341(a) Meeting of Creditors. The notice also advised that the last day to object to the Debtor's discharge under section 727 of the Bankruptcy Code, or to the dischargeability of particular claims under section 523 of the Bankruptcy Code was September 9, 2019 (the "Discharge Objection Deadline").^[15]

On June 10, 2019, Deborah Piazza (the "Chapter 7 Trustee") was appointed as chapter 7 trustee.

On June 18, 2019, the Plaintiffs filed three proofs of claim in the Bankruptcy Case, as follows:

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